A detailed guide to setting up a trust, choosing between revocable and irrevocable types, selecting trustees, funding the trust, and understanding tax implications.
Evaluate whether a revocable living trust meets your goals
A revocable trust avoids probate, maintains privacy, and lets you manage assets while alive. You can change or dissolve it anytime. Setup costs $1,500-$3,000 with an attorney. Best for estates over $500,000 or property in multiple states.
Assess irrevocable trust for tax reduction and asset protection
Once created, an irrevocable trust cannot be changed without beneficiary consent. Assets in the trust are removed from your taxable estate, which matters if your estate exceeds $13.61 million (2025 federal exemption). Assets are also protected from creditors and lawsuits.
Consider special-purpose trusts if applicable
Special needs trusts protect disabled beneficiaries' government benefits eligibility. Spendthrift trusts protect against beneficiaries' creditors. Charitable remainder trusts provide income and tax deductions. Each serves a distinct purpose, so define your goals before choosing.
Compare probate costs in your state against trust setup costs
Probate costs range from 2-7% of estate value depending on the state. In California, probate on a $1 million estate costs about $46,000 in statutory fees. In states with simpler probate like Texas, the savings from a trust may be smaller.
Select Your Trustee
Name yourself as initial trustee of a revocable trust
As trustee of your own revocable trust, you maintain full control over all assets. You can buy, sell, and manage everything exactly as you do now. There are no tax filing changes because the trust uses your Social Security number.
Choose a successor trustee to take over if you cannot serve
Your successor trustee manages the trust if you become incapacitated or die. Choose someone who is financially responsible, organized, and available. They'll handle asset management, distributions, and tax filings, which requires 5-10 hours per month initially.
Consider a corporate trustee for large or complex trusts
Banks and trust companies charge 0.5-1.5% of trust assets annually as trustee fees. For a $2 million trust, that's $10,000-$30,000 per year. They provide professional management and continuity but lack personal knowledge of your family dynamics.
Name a trust protector if using an irrevocable trust
A trust protector can modify certain trust terms, remove and replace trustees, and adapt the trust to changing laws. This provides flexibility in an otherwise rigid structure. Not all states recognize trust protectors, so confirm with your attorney.
Fund the Trust (Transfer Assets)
Retitle real estate into the trust's name via a new deed
Record a new deed transferring property from your name to the trust. This costs $50-$300 in recording fees per property. Contact your mortgage lender first; while federal law prevents due-on-sale clause enforcement for revocable trusts, notifying them avoids confusion.
Transfer bank and brokerage accounts to the trust
Contact each financial institution to retitle accounts in the trust's name. Most banks complete this with an in-person visit and a copy of the trust certificate. Expect 1-2 weeks per institution. An unfunded trust provides zero probate protection.
Assign life insurance policies to the trust if appropriate
For revocable trusts, name the trust as beneficiary rather than transferring ownership. For irrevocable life insurance trusts (ILITs), the trust must own the policy from the start. Transferring an existing policy triggers a 3-year lookback period for estate tax purposes.
Transfer vehicle titles to the trust
Visit your DMV with the trust certificate to retitle vehicles. Some states charge a $10-$30 title transfer fee. Notify your auto insurer of the title change to ensure coverage continues without gaps. Some people skip this for vehicles under $25,000 since small estates often avoid probate.
Understand Tax Implications
Confirm revocable trust tax treatment during your lifetime
A revocable trust is a "grantor trust" for tax purposes. All income is reported on your personal 1040, using your Social Security number. There is no separate trust tax return required while you're alive and serving as trustee.
Irrevocable trusts file their own tax return (Form 1041) and receive their own EIN. Trust tax brackets are compressed: income over $15,200 (2025) is taxed at the highest 37% rate. Distributing income to beneficiaries shifts taxation to their lower brackets.
Review estate tax exemption thresholds and portability
The federal estate tax exemption is $13.61 million per person in 2025. Married couples can combine exemptions for $27.22 million using portability. This exemption is set to drop to approximately $7 million per person in 2026 unless Congress acts.
Create a Pour-Over Will
Draft a pour-over will to catch assets outside the trust
A pour-over will directs any assets not already in the trust to be transferred into it at death. This catches newly acquired property, forgotten accounts, or assets you didn't retitle. These assets still go through probate, but they end up in the trust for distribution.
Name guardians for minor children in the pour-over will
Trusts cannot name guardians for minor children; only a will can do this. Your pour-over will should include guardian designations even if your trust handles all financial matters. Without a will naming a guardian, the court decides.
Coordinate the pour-over will with trust distribution terms
Ensure the will's executor and trust's successor trustee can work together. Often, naming the same person for both roles simplifies administration. The will should reference the trust by its full legal name and date of creation.
Schedule Ongoing Trust Reviews
Review the trust annually to ensure all new assets are funded into it
Set a calendar reminder each year to check that new bank accounts, real estate purchases, and investment accounts have been titled in the trust's name. The most common trust failure is forgetting to fund new assets into it.
Update the trust after major life events
Marriage, divorce, birth, death, or a move to a new state should trigger a trust review. Some states have different trust laws that may require amendments. A trust amendment costs $200-$500 with an attorney, far less than creating a new trust.
Verify successor trustee is still willing and able to serve
Check in with your successor trustee every 2-3 years. People move, relationships change, and health conditions develop. If your trustee can no longer serve, amending the trust to name a replacement takes a single meeting with your attorney.
Frequently Asked Questions
How much does it cost to set up a trust?
A revocable living trust drafted by an estate attorney typically costs $1,500-$3,000 for an individual and $2,000-$5,000 for a married couple, including a pour-over will, power of attorney, and healthcare directive. Complex irrevocable trusts (asset protection, charitable remainder, special needs) range from $3,000-$10,000+. Online services like Trust and Will offer basic revocable trusts for $599-$699, though they lack customization for complex situations.
What is the difference between a revocable and irrevocable trust?
A revocable trust can be changed or dissolved at any time during your lifetime, and assets remain part of your taxable estate. An irrevocable trust cannot be easily modified once created, but assets are removed from your estate for tax purposes and shielded from creditors and lawsuits. Most people start with a revocable living trust for probate avoidance; irrevocable trusts serve specific purposes like estate tax reduction, Medicaid planning, or asset protection.
Do I need to retitle my assets into the trust?
Yes, and this is the step most people skip, leaving their trust unfunded and ineffective. Real estate requires recording a new deed, bank accounts need title changes, and brokerage accounts require retitling to the trust name. Assets not transferred into the trust will still go through probate. Your attorney should provide a funding checklist; the retitling process typically takes 2-4 weeks for all accounts.
Can a trust protect my assets from nursing home costs?
A revocable trust provides zero Medicaid protection because assets in it are still considered yours. An irrevocable trust can protect assets from Medicaid spend-down requirements, but transfers must occur at least 5 years before applying for Medicaid (the look-back period). This is a complex area where timing and trust structure matter enormously. Consult an elder law attorney, as mistakes in Medicaid trust planning can be costly and irreversible.